Putting the (Insta)cart before the (Grocery) horse: A COVID Favorite's Reality Check!

Instacart, which facilitated online grocery shopping during the pandemic, is preparing to go public with a valuation of $9-$10 billion, lower than previous estimates due to a shift in consumer behavior. The grocery business, characterized by low growth and margins, limits the potential earnings of intermediaries like Instacart. While the pandemic fueled online grocery shopping, the trend is expected to settle at a lower level, with physical shopping still preferred by many. Instacart faces intense competition from established grocery chains offering their own online platforms, as well as delivery services like Uber Eats. The company's operating costs include service fees and payments to shoppers and drivers, which impact its profitability. Instacart's revenue model involves fees from customers and fulfillment fees from stores. However, grocery stores often pass these costs to consumers or lose direct customer relationships and data. The grocery industry's slow growth and low margins, coupled with the growing dominance of established players, limit Instacart's valuation prospects.